Potash and Putin
Farhad Abasov, CEO & President for Allana Potash Corp. just left my office after stepping in to do a quick interview. We started by discussing the overall impact of Urakali incident on the market, because if you listen to the media – they would have you believe the sky is falling since Urakalai’s CEO Vladislav Baumgertner of the “world’s most influential potash producer” was arrested in Belarus on August 26th.
Allegedly on his way to secret talks with Belarus’s prime minister, CEO Vladislav Baumgertner was arguably manhandled and handcuffed: seized at the airport of the Belarusian capital Minsk, and charged for — Kafkaesque “abuse of powers”. Hmmm, a rather vague crime, keep in mind that there are supposedly four other Uralkali executives involved in a criminal scheme that some sources say has cost the country $100 million. One must wonder why they didn’t invite all five of them together, and nail them all in one ‘potash play’ instead of picking off one at a time. And of course, the other four still remain at large…perhaps they are at the Russian airport?
Ever since I was introduced to the potash industry, I have affectionately referred to the analysts in this sector as the ‘potash cartel’, but this was because of their ability to take what is arguably a simple subject (food) and turn it into something worthy of a mad scientist’s journal notes for investor’s to digest that few so that few to none could translate. For this reason, it has been one of my mandates to get potash and phosphate equities out of solely institutional hands and expand retail market interest. In fact, these famous few are talking about a 20% price drop in potash (‘plunge’ was the last headline I read), but when, if at all? The August 31st MOP potash spot price was USD$393.25, up from USD$392.90 on July 31st; this standard grade Vancouver F.O.B. MOP spot price; and for that matter, our client’s stocks have averaged even at +2.22% since this unforeseen drama worthy of a Hollywood script (Note: our clients are exploration and advanced exploration stage).
None of this can be a surprise to us as but let’s be frank, nothing with the word ‘cartel’ in it is deemed a democracy, and Belarus has a real potash cartel, BPC – a partnership between Uralkali and Belaruskali. Led by Belarus President Alexander Lukashenko, who has been described as “Europe’s last dictator, the BPC potash cartel rule was simple – do not sell outside the cartel. But President Lukashenko determined that he could and would…do whatever, he wanted to. So, and this is where it gets tricky, the deal was Belarus could sell potash outside their own cartel (BPC) – but Urakali could not.
Uralkali determined this was nonsensical and felt that they could disagree with Lukashenko as they have what many of us would deem some ‘influential friends’. Urakali had bench strength as the Company’s main owner is Suleiman Kerimov and the chairman, is Alexander Voloshin. Kerimov is a billionaire with close ties to Russian president Vladimir Putin, and Voloshin was the former Kremlin chief of staff.
Why does Putin care? Putin is committed to food security, an international geopolitical mandate that few in North America even think about. In fact food security of Russia was formalized in January 2010 when president Medvedev signed the “Food Security Doctrine”, which aims to see the country reach 85% self-sufficiency in meat and poultry by 2020. The Doctrine’s main objective is self-maintenance of the country with qualitative agricultural production, raw materials and the foodstuffs at level not less than 80-90% from requirement.
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Russia’s media response to Baumgartner’s treatment is described as fierce, and Putin has demanded Baumgertner’s immediate release and summoned the Belarus ambassador in Moscow to be told bilateral ties are at risk. This business of the BPC cartel demise has shaken the $20 billion global potash market and Baumgartner is the political pawn being held hostage.
There is no question Putin needs potash, but the rumor is…no one needs Baumgartner…or the cartel.
In memory of oil tycoon Mikhail Khodorkovsky, who has been in Russia’s prison system since 2003.
An accomplished entrepreneur and corporate finance professional, Tracy Weslosky is the CEO for InvestorIntel Corp. and the VP of Business Development for Bellotti Capital Partners ... <Read more about Tracy Weslosky>